Financing Economic Development Through Usurious (Riba-based) Loans

First I'll give an example from the real life which is terribly important for the future generations of the Ummah.

In our country we do not have sewerage system. Population in the cities has increased incredibly. Each house maintains its private sanitation system by digging a septic tank to store the sewage. From the same ground we pump water for our daily use. In many places the sewage has already mixed with the ground water. As a result, hepatitis C is spreading at an alarming level. The only solution is to develop sewage and drainage system which requires funds.

Funds can be available on the basis of interest-based borrowing by development finance institutions. But this is considered Riba. The other alternative is to borrow through mark-up or renting. This method is not as efficient as the interest-based method. The Question is that when we are facing such a terrible problem, are we Islamically justified to ask whether to use interest or mark-up mechanism? Or we should attack the problem in the most effective manner be it interest or mark-up! In the light of the Holy Quran and the Sunnah of our last Prophet peace be upon him, can you tell us - is this problem related to Maslahah Al Ama or Riba? How the learned Shariah scholars are discussing such issues which pose security problems for the future generations of the ummah.

Walaikum assalam wa rahmatullah,

My dear brother, I pray this finds you in the best of health and spirits. The Prophet (Allah bless him and give him peace) said that, “The one unconcerned about the affairs of our Ummah is not [truly] from us.” Taking sound means to promote the economic, social, and political welfare of the Muslim Ummah in general and one’s area or country in particular is a Shariah duty.

The Question about your Question, though, is: do interest-based ‘development loans’ help developing countries? Both the general evidence and history would seen to indicate that they do not. I studied Development Economics at university, and it was an area of great interest to me when I was editor of the African News and Information Service (Africa-N) on the Internet in the early and mid-90s. The economic crisis of much of the Third World, and most obviously Africa, is aggravated and exacerbated by their tremendous debt loads, which choke off and stifle attempts to promote essential economic and social welfare.

As such, scholars will tell you that it is hard to conceive of true promotion of economic or social welfare through the perusal of riba-based financing.

Allah Most High Himself as told us in the Qur’an,

“2.276 Allah has blighted usury and made almsgiving fruitful. Allah loves not the impious and guilty.”

The scholars of Qur’anic interpretation, such as Imam Alusi (Allah have mercy on him) have explained ‘Allah has blighted usury,’ as meaning that Allah, “Removes all baraka (blessing) from it, and destroys the wealth of the one who enters into it.” [Alusi, Tafsir Ruh al-Ma`ani, 3.51]

Ibn Mas`ud (Allah be pleased with him) related that the Prophet (Allah bless him and give him peace) said, “Usurious money, even if much, becomes paltry in the end.” [Ahmad, Ibn Maja, and Hakim, with a rigorously authentic chain of transmission]

This is the general ruling. There are many Shariah-acceptable meaning of financing, which would also secure economic and social welfare with baraka (blessing) in it, which would ensure lasting increase by the promise of Allah and His Messenger (Allah bless him and give him peace). In specific policy cases, top scholars must be consulted to determine whether exceptions exist.

And Allah alone gives success.

Wassalam,
Faraz Rabbani